For Canada Day, Chris Short, Canada’s Country Manager for Atradius, gave us a brief overview of the current state of Canada’s economy, and how it compares to recent years.
July 1st is Canada Day! Canada Day celebrates the anniversary of Canada being established as a single country. We spoke with our colleagues in Canada to get an update on the country’s economy, strengths, and weaknesses continuing through the rest of this year.
After a 3.2% economic growth in 2022, growth in 2023 is predicted to slow to 1.3%. How is this determined? Firstly, in Q1 of 2023, the economy only rose 0.8% and inflation has surpassed projections leading to the rising in the cost of living. The Bank of Canada has raised interest rates, unemployment rates have risen to 5.2% for the first time in nine months, and consumer credit market debt rose along with delinquencies.
In recent months, inflation has fallen due to the downturn in energy prices. The consumer price index (CPI) rose at a 4% annual pace in May, which was the lowest reading in over two years. However, “core CPI” which is the consumer price index minus energy and food prices, remains a lingering concern.
Overall, this year so far in comparison to years past is showing rising inflation and interest rates continuing. On the other hand, inflation is down and the labor market remains strong despite labor productivity shortages, which has decreased their manufacturing competitiveness. Canada is seeing an increase in the cost of securing capital for businesses, labor force shortages, and the continued impact of supply chain issues as well as the Ukraine war. Finally, quantitative easing is slowing down, causing consumer spending to decrease.
Canada is facing some weaknesses currently such as high household debt, highest amongst the G7, which includes Canada, France, Germany, Italy, Japan, the UK, and the US; as well as deteriorating household affordability. They are also struggling with dependence on the US economy, energy prices, insufficient R&D expenditure, and energy exports being weakened, which is caused by insufficient pipeline to the US and the US demand. While the supply shortage is continuing, the labor market is strong. A main concern is about fears of DSO deterioration that could squeeze liquidity.
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While Canada is facing economic challenges, their bank sector is strong and well capitalized. In addition, resources in the energy, agriculture, and mineral sectors is abundant. The government has a manageable debt level and 30% of GDP, which is the lowest of the G7. The business environment is thriving, and trade deals with the USMCA and CETA alongside the proximity of Canada to the US is proving to be beneficial.
In summary, there is a strong positive business outlook in the future of Canada, hopefully leading to an improvement in payment practices and an expansion in trading to drive business growth. Read our most recent PPB report for Canada here. Also, our DSO calculator can help you to understand the DSO parameters for your specific industry and where your business falls.